Pros and Cons of Clinical Observation Units


Although the American College of Emergency Physicians considers clinical observation units a “best practice,” only one third of U.S. hospitals have them in place.

Hospitals nationwide face significant capacity constraints in emergency departments. High hospitalization rates can have a ripple effect, leading to long wait times, frequent diversion of patients to other hospitals, and higher patient-care expenses. However, a sizable number of inpatient admissions can be prevented through dedicated clinical observation units, or COUs. Such a strategy is likely to be more efficient, can result in shorter lengths of stay, and can decrease health-care costs.1

Also known as clinical decision units, “obs” units, or short-stay observation units, these hospital-based units lend themselves as a feasible solution. Many of the COU success stories come from “chest pain” units, along with ED-based observation units. Over time, the COUs have been expanded to include many more conditions and have enjoyed success when dealing with asthma exacerbations, transient ischemic attacks, bronchiolitis in pediatric populations, and congestive-heart-failure exacerbation, to name a few.

Most COUs use a window of six to 24 hours to carry out triaging, diagnosing, treating, and monitoring the patient response. Anytime before the 24-hour mark, a decision is made whether to discharge or admit the patient. The success of dedicated COUs relies heavily on strong leadership, strict treatment protocols, and well-defined inclusion/exclusion criteria.

COU utilization has been well received by several professional bodies. Both emergency medicine physicians and hospitalists are natural key players in the widespread utilization of COUs. SHM, in a white paper, concluded: “Collaboration between hospitalists, emergency physicians, hospital administrators, and academicians will serve not only to promote outstanding observation care, but also to focus quality improvement and research efforts for the observation unit of the 21st century.”2 The American College of Emergency Physicians (ACEP), in its position statement, said the “observation of appropriate ED patients in a dedicated ED observation area, instead of a general inpatient bed or an acute care ED bed, is a ‘best practice’ that requires a commitment of staff and hospital resources.”3

As promising as the COUs appear, it is estimated that only one-third of hospitals have them in place.4 And while much of the COU story is good, there are concerns with the patient-care model.

The Good

Instinctively, a COU is a win-win proposition for all stakeholders. Essentially, many see these units as a fine blend of clinical care, fiscal responsibility, and patient accountability. Among the benefits:

Reduced admissions. On average, the admission rates from ED to inpatient services are 13.3%.5 In contrast, in hospitals that have a robust COU in place, the admission rates are much lower. As an example, Cook County Hospital in Chicago in the mid-1990s saw a decline in the admission rates from the emergency room following implementation of a COU, along with an increase in bed capacity due to the efficient, protocol-driven approach that goes along with successful ED observation units.6 With well-structured and managed observation units, such a reduction in hospitalization rates has been shown, is reproducible, and is achievable.

Improved case-mix multiplier. Inpatient reimbursements from the Centers for Medicare and Medicaid Services (CMS) and private insurers frequently are tied to the acuity of care a hospital provides. Critical to making that determination is the case mix that a given hospital sees. Usually, the more complex patients a hospital admits, the higher the reimbursements are. With a successful COU, a hospital can expect a case-mix multiplier representing patients with greater complexity and higher acuity.

What a successful COU essentially does is lead to the admission of patients with greater comorbidities—those who are sicker than the average patient. In doing so, COUs also facilitate safe discharges of the patients who do not necessarily need to be admitted. As an average, the cohort of patients who are admitted as inpatients then consists of patients who are sick enough and absolutely need to be admitted.

Resource utilization. When a patient is admitted from the ED to an inpatient floor, a lot of resources are utilized. These include expenses related to transportation, housekeeping, nursing, and ancillary services. Each of these additional resources comes with an expense. The more resources that are put in motion, the greater the expense a hospital incurs. With effective COUs, it is generally expected that suitable patients will get the care in a specific geographic area by the same set of providers. COUs tend to reduce unnecessary hospitalizations, redundancy of manpower utilization, and duplication of documentation—therefore reducing the expenses incurred by the hospital.

Infection control. The COUs operate based on minimizing the stay of the patients who can be safely discharged after a brief observation period. Decreased duration of stay also means decreased movement and unique provider contact/exposure—thus decreasing the chances for acquiring health-care-related infections. Besides, most COUs are restricted to a certain geographic area within the hospital, which helps to restrict patients to a limited area. This again may be helpful in better overall infection-control practices. More research is necessary to establish this association of the infection-control advantages of COUs. The hypothesis, however, does appear very promising.

Prompt and standardized care. Most COUs use an evidence-based, standardized approach toward the patients seen in the ED. Several professional bodies have endorsed the use of protocol-driven care for the conditions seen in the COU. Most professional organizations that have a key role in COUs advocate this approach, and include the ACEP, AHA, and SHM. When a COU has established itself, it likely is to use specific, expedited, protocol-driven approaches. This allows for care to be focused and standardized. This also is an opportunity to avoid redundant imaging and lab testing.

Patient safety. In its landmark publication “To Err is Human: Building a Safer Health System,” the Institute of Medicine identified communication error as one of the factors that lead to mistakes in patient care.7 COUs often tend to provide bulk of care at a given geographical area; this minimizes the transfer of patients from one place to another, thereby decreasing communication errors.

By providing more time to make decisions, COUs afford a greater diagnostic certainty. In the long run, this also helps a hospital minimize costly lawsuits.

An efficient COU means that the patients who are admitted are, in fact, sicker. Logically, these patients will have a higher chance of being readmitted. Because the “not so sick” patients were successfully intervened and discharged from COUs, the patients that did get admitted must be pretty sick and must have higher comorbidities.

The Bad

Not everything about COUs is great. There are certain areas that dull the luster of an observation unit.

Overzealous approaches. COUs are designed to allow more time to make clinical decisions when the triaging is in a gray area: whether to admit or not. Also, COUs provide clinicians with more time to follow the response to the care the patients receive in an emergent fashion. It needs to be emphasized that COUs are designed neither to replace hospitalization, nor to act as urgent care. As a corollary, there is a chance clinicians may be overzealous in discharging patients from COUs close to the 24-hour mark—even though it might not be clear whether the patient needs to be admitted or discharged. Overzealous discharging of COU patients can damage the premise of these units: to determine the need for admission and ensure patient safety. Having strict inclusion and exclusion criteria and good management can prevent these problems.

Staffing. Introduction of a COU can strain an already short-staffed ED. No different from any other novel approach, COU staffers need to be afforded a learning curve. This requires training personnel and establishing a robust team to staff COUs. It can be a strenuous process, at least in the beginning. Strong leadership and support of hospital, physician, and nursing leadership all play a role in the successful implementation and ongoing utilization of COUs.

Logistics. Coordination of people, facilities, and supplies that go into instituting a COU might be a challenge. Also, there may be times where patient ownership may not be very clear. Logistical concerns can include:

  • Who owns the patient?
  • How much of a role does a consulting service have?
  • Who oversees the follow-up plans?

Although a popular COU setup is to have a dedicated observation unit adjacent to the ED, it is not a standard.

Reimbursement. Unfortunately, there is some degree of negative incentive built into reimbursements for COU operations. To understand why this is a bad thing for a hospital, let’s examine how hospitals are paid for services provided in a COU.

Frequently, COU patients are treated as “outpatients.” The operating formula is based on the Hospital Outpatient Prospective Payment System (OPPS), which is based on Ambulatory Payment Classification, or APC.8 Reimbursement differences in these two approaches can be quite sizable. Depending on what condition is being treated, the hospital reimbursement can be as little as half to a quarter of the payment for inpatient treatment.9 Essentially, the patient would have received very similar care, diagnostic work-up, antibiotics, imaging, lab work, and equally qualified clinicians as caretakers in both the settings. The payments need to account for the care in the COUs, which is usually more acute than in the ambulatory setting and potentially more efficient than an inpatient setting. The payments, therefore, should be sensitive to these factors.


The Ugly

COUs are intended to address many of the challenges facing the healthcare system, and in large part, that is what they do. However, some hospitals could be penalized for providing care through COUs. An efficient COU means that the patients who are admitted are, in fact, sicker. Logically, these patients will have a higher chance of being readmitted. Because the “not so sick” patients were successfully intervened and discharged from COUs, the patients that did get admitted must be pretty sick and must have higher comorbidities.

According to CMS, a readmission occurs if a patient has “an admission to a subsection hospital within 30 days of a discharge from the same or another subsection hospital.”10 The denominator here consists of all the patients who were discharged from the hospital inpatient stay. If a hospital does not have a robust COU, a large number of “not so sick” patients will be admitted as inpatients and will provide a larger denominator for calculating the readmission rates.

In contrast, a successful COU will allow for a large number of “not so sick” and “borderline” patients to be discharged, shrinking the denominator base, and “very sick” patients who are likely to be readmitted. This may erroneously cause the hospital to appear to have higher 30-day readmission rates. These hospitals may risk substantial readmission-related penalties.

This issue, along with a lopsided payment model, makes the COU landscape murky. With a greater share of pie being the “Il buono” in Il buono, il brutto, il cattivo, clinical observation units are certain to take a prominent position in addressing many of the issues that plague current healthcare facilities—capacity constraints, long ED wait times, limited inpatient beds, and soaring health-care expenditures.

Most important, COUs can lead to better and more efficient patient care.11 It is, therefore, not surprising that the IOM, in its report “Hospital Based Emergency Care—At the Breaking Point,” has identified clinical decision units as a “particularly promising” technique to improve patient flow.12

Dr. Asudani is a hospitalist in the division of hospital medicine in the department of internal medicine at the University of California San Diego Health System. Dr. Tolia is director of observation medicine in the department of emergency medicine and internal medicine at UCSD Health System.


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  8. Centers for Medicare & Medicaid Services. Hospital outpatient prospective payment system. Centers for Medicare & Medicaid Services website. Available at: Accessed April 2, 2013.
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  10. Centers for Medicare & Medicaid Services. Readmissions reduction program. Centers for Medicare & Medicaid Services website. Available at: Accessed May 6, 2013.
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  12. Institute of Medicine. Hospital-based emergency care: at the breaking point. Washington: National Academies Press; 2007.